Iran and Iraq are forming a strengthening alliance inside Opec, raising concerns among moderate Arab Gulf producers like Saudi Arabia and increasing the potential for discord in the oil producers’ group.

With the EU sovereign debt crisis worsening and growing fears for the global economy, the deep divisions within Opec risk undermining the organisation’s ability to do its job of effectively managing oil supply and preventing violent price swings.

A person familiar with the matter said Opec’s meeting in Vienna on Thursday was overshadowed by “strong disagreements” over issues ranging from the acceptable price of oil, to the global supply-demand balance, to who should replace the current secretary general of the organisation.

A particular bone of contention was a proposal by Venezuela – backed by other Opec hardliners like Iran, Iraq and Algeria – that the group should protest against the EU sanctions against Tehran over its nuclear programme. The move was rebuffed by Saudi Arabia and other moderates including Nigeria, Libya and Kuwait, who argued that such protests were the preserve of foreign ministers, not oil ministers.